BANKS TO REFER BAD LOANS IN STRESSED POWER SECTOR TO NCLT

MUMBAI: Banks have decided to refer massive bad loans in the power sector to bankruptcy courts, three people aware of the development said, dashing hopes of an early resolution through bilateral deals.

The lenders decided against quicker one-time settlements and outright sales, partly due to a lack of consensus and partly to avoid possible legal scrutiny of such decisions at a later date, according to the people cited above, who spoke on condition of anonymity.

“We were informed today by lenders that they have decided to refer all stressed power assets to the National Company Law Tribunal (NCLT),” said an executive with a firm, which had submitted a bid for a distressed power plant.

“The NCLT process follows a legal framework, it’s monitored by the RBI (Reserve Bank of India) and a resolution under the Insolvency and Bankruptcy Code will protect bankers from scrutiny later. I believe that lawyers to several banks have asked them to refer all power assets to the NCLT,” this person added.

On February 12, RBI had issued a circular setting a 180-day timeline starting March 1 for banks to resolve large corporate defaults, failing which all these companies must be taken to bankruptcy courts. At ₹1.74 lakh crore, power accounts for a large chunk of these bad loans.

Of the 18 stressed power assets that RBI had identified, banks had initially decided to refer 11 cases to the National Company Law Tribunal and pursue quicker resolution for the remaining seven.

On Thursday, after meeting power ministry officials, banks decided to refer these seven to NCLT as well.